Bank of Canada Predicted to Cut Interest Rate

Two economists predict the Bank of Canada will slash its benchmark interest rate from its current level of one per cent next year.

Bank of America economist Sheryl King said Wednesday she expects that the central bank will cut the rate to 0.25 per cent by early next year.

King, head of Canada economics at Bank of America’s offices in Toronto, cited the strains from Europe’s debt crisis.

And David Madani, Canadian economist at Capital Economics, predicted the bank will lower its rate to 0.5 per cent next year, perhaps in April or June.

Madani said the bank would act amid “rising fears about the outlook for the global economy and falling inflationary pressures.”

He predicted that commodity prices would fall “sharply” next year and “somewhat further” in 2013 because of weak global demand, that a downturn in the U.S. would result in a drop in exports to Canada’s main trading partner and that housing prices here would slump.

On October 25, the bank announced for the ninth consecutive time that it was holding the rate at one per cent, where it has been since September 2010.

Madani also estimated Ottawa will take even longer to eliminate its $33 billion budget deficit.

Just yesterday, the government said it expected the budget would not come into balance for a year longer than its estimate in the spring.

It now expects the deficit to be gone by 2015.

The two economists’ predictions came the same day as interim Liberal Leader Bob Rae said that Finance Minister Jim Flaherty is downplaying the potential impact of Europe’s economic crisis on Canada.